Russian government: Telcoms face cost hike from new security law

MOSCOW (Reuters) - Russian telecoms operators will have to ramp up charges by up to 10 percent to cover costs they will incur implementing new laws designed to give state security greater oversight over telecoms, according to an estimate from the main security agency.

The estimate for increased charges demonstrates the far-reaching and often onerous consequences of the Kremlin-backed law, which requires operators to store the content of users’ phone calls, text messages and Internet traffic for six months.

The estimate was contained in a letter from the Federal Security Service (FSB), successor agency to the Soviet-era KGB and a driving force behind the new laws, to the Communications Ministry, according to a ministry official.

“Yes, these estimates were mentioned in the FSB’s letter,” Alexander Ponkin, director of the ministry’s Department for Regulating Radio Frequencies and Communications Networks, told Reuters when asked about the 10 percent figure.

He said though it was too early to forecast how the law, which comes into force in its full extent from Oct. 1 this year, would influence how much operators charge their customers. The FSB did not respond to a request for comment.

The 10 percent estimate has not previously been reported. According to Communications Ministry data, the total revenue earned in Russia from providing mobile and Internet telecoms services last year was 1.1 trillion rubles ($17.32 billion). Ten percent of that sum would be $1.73 billion.

State-run Rostelecom is the major player in Russia’s fixed-line communications. The big operators on the Russian mobile telecoms market are Megafon, controlled by the USM group of tycoon Alisher Usmanov; MTS, controlled by the Sistema conglomerate of billionaire Vladimir Yevtushenkov; Veon, controlled by Russian tycoon Mikhail Fridman and Tele2 Russia, controlled by a consortium of Russian banks and Rostelecom.

Rostelecom said it had no current plans to raise tariffs in response to the new law, Megafon said the competitive market made raising charges unlikely, and Tele2 said the market set the level of charges. MTS and Veon declined to comment.

In March this year, Nikolai Nikiforov, who at the time was communications minister, said he believed the new law would not lead to “a dramatic increase in prices.”

The new law has already led to unintended consequences. Russian telecoms operators are scrambling to acquire the equipment needed to store the vast quantities of users’ data.

As a consequence, no one in the sector was able to meet a July 1 deadline to implement part of the law, and some firms are having to import foreign gear despite a Kremlin order for homegrown equipment to be used, two sources with knowledge of the situation told Reuters.